A stock split is a corporate action in which a company divides its existing shares into multiple new shares, increasing the number of outstanding shares and enhancing liquidity. While this makes the stock more affordable for investors, it does not change the company’s overall market value or the total value of the investment.
Example: Company ABC announces a 2-for-1 stock split:
- Before the split: 100 shares at ₹10 each (total market value: ₹1,000).
- After the split: 200 shares at ₹5 each (total market value remains ₹1,000).
Shareholders now have more shares at a lower price, but their overall investment value remains the same.